NZD/USD: On the back foot near two-week low under 0.7100 on firmer USD

• NZD/USD is set for a second weekly fall after the DXY jumped the most in a month.
• NZ Q2 GDP backed RBNZ rate hike odds but US data bolstered Fed tapering tantrums and retake controls.
• Geopolitical tensions add to the risk-off mood, underpinning the US dollar’s safe-haven demand.
• US Michigan Consumer Sentiment Index is the key data for today, next week’s FOMC in focus.

NZD/USD kick-starts Friday’s Asian session on a sour note around 0.7075, after dropping the most in eight days on Thursday. The broad US dollar strength dominated market moves the previous day and not only reversed the kiwi pair’s GDP-backed strength but also piled more losses the previous day.

On Thursday, the US Dollar Index (DXY) jumped 0.44% on a day, the strongest daily gains in a month, after the Retail Sales for August and Philadelphia Fed Manufacturing Index for September renewed Fed tapering concerns. The US Retail Sales MoM jumped to the highest in five months while crossing expectations of -0.8% with +0.7% figures. Further, the Philly Fed gauge also rose strongly to 30.7 versus 19 forecast and 19.4 prior, marking the strongest figures in three months.

Read: Fed Preview: Three ways in which Powell could down the dollar, and none is the dot-plot

In addition to the firmer data raising prospects of a Fed tapering announcement during the next week’s Federal Open Market Committee (FOMC), the US-UK-Australia security pact to tease China also raised market fears and favored the US dollar’s safe-haven demand.

Elsewhere, NZ Q2 GDP rose past 1.3% QoQ forecast to 2.8% while the previous readings were revised down to 1.4% versus 1.6%. Further, the YoY figures were brighter, as expected, while rising to 17.4% from upwardly revised 2.9% previous readouts and 16.3% market consensus.

The GDP data reject the early week release of the New Zealand Institute of Economic Research’s (NZIER) downwardly revised GDP forecast for the short-term. It’s worth mentioning that the firmer GDP QoQ figures join the previously released strong inflation and jobs report to inflate the odds of the Reserve Bank of New Zealand (RBNZ) rate hike during this year.

Following this, the Australia and New Zealand Banking Group (ANZ) said, “While the Kiwi got a boost from yesterday’s very strong Q2 GDP result, which has in turn seen the market price in ~40% odds of a 50bp OCR hike in October (rather than 25bps), those gains were fleeting and likely reflect a market that already has as much good news priced in as it can handle.”

Amid these plays, Wall Street closed mixed but the US 10-year Treasury yields rose 3.2 basis points (bps) to 1.336% by the end of Thursday’s North American session.

Moving on, bears are likely to keep reins for the second consecutive week, except for a strong positive surprise, heading into the next week’s key event namely the Fed monetary policy. It should be noted, however, that the preliminary readings of the US Michigan Consumer Sentiment Index for September, expected 72.2 versus 70.3 previous readouts, may offer intermediate directions.

Read: US Michigan Consumer Sentiment Preview: Markets will have to look hard for positive signs

Technical analysis

Having portrayed multiple failures to close beyond the 200-DMA level of 0.7120, NZD/USD broke the 0.7100 support mark. However, the kiwi pair failed to provide a daily closing below 100-SMA level surrounding 0.7075, which in turn hints at a corrective pull, which if ignored could aim for the tops marked in the middle of July and August near 0.7050.